Overreach Overturned Again

Forgotten lies aim to distract me
This mono mind must not connect
Purer nature will contain me
Free fall in air I will surpass
--The Fixx

Last week the Supreme Court overturned Roe v. Wade, which sent the question of whether abortions should be legal to the various states. Today, in the case of West Virginia v. EPA, the high court ruled that the Environmental Protection Agency was not specifically authorized by Congress to limit greenhouse gas emissions when the agency was established in 1970.

The court essentially sends the issue back to Congress. If it wants to enact sweeping regulations to curb greenhouse gas emissions, then Congress must do so through the legislative process. 

The ruling makes it more difficult for climate change activists to circumvent the constitutional law-making process.

In both of these cases, the Supreme Court strikes blows against overreach. In Roe, it was the court itself writing law. In West Virginia, it was the executive branch working through one of its agencies (although one could argue that it was the rogue administrative, or deep, state acting out its own agenda.

The court's decisions place responsibility for both issues with elected legislators and, ultimately, with the voters who elect them. 

This, of course, is consistent with the intent of our founding ancestors. 

Commitment to Stupidity

"He chose...poorly."
--Grail Knight (Indiana Jones and the Last Crusade)

The larger question for big government types is this: Have not the past couple of years demonstrated the sheer ineptitude of central planning?

Public health. War and sanctions. Economic and monetary policy. Et al.

Hayek called it the fatal conceit--the belief that bureaucrats in a room can choose better than billions of individuals.

Ongoing belief in central planning constitutes a genuine commitment to stupidity.

That Ain't Workin'

We got to install microwave ovens
Custom kitchen deliveries
We got to move these refrigerators
We got to move these color TVs
--Dire Straits

One factor that influences price pressures is the number of people in the workforce. Less workers mean less supply. Less supply at constant demand means higher prices.

The labor force participation rate has been in secular decline. The 'Great Resignation' resulting from CV19 policies added fuel to the fire as able-bodied people hit the silk.

How are markets likely to compensate for the labor shortfall? Offer higher wage rates--which also, by itself, is inflationary.

As one policy distortion begets others...

Roe Overturned

Always searching for the real thing
Living like it's far away
Just leave all the madness in yesterday
You're holding the key
When you believe it
--Michael McDonald

Yesterday the United States Supreme Court, in the case of Dobbs v Jackson Women's Health Org, overturned the controversial 1973 high court opinion of Roe v Wade--that abortion was a constitutional right. The 6-3 decision was split along party lines, although, as usual, the political animal Chief Justice John Roberts, while concurring in judgment, argued for a compromise that would have prohibited a clean break from Roe.

Dobbs is a worthy read. The institutional challenge facing the court was how to reverse a longstanding albeit controversial and politically charged precedent. The solution, of course, is to stick to the law--something that the Roe court failed to do. 

The primary opinion authored by Justice Alito and supplemented by Justices Thomas and Kavanaugh demonstrates how to go about righting a past judicial wrong. The court first reviews the standards by which 'liberty' as referenced in the Fourteenth Amendment protects particular rights. The central conclusion of this analysis is that the Constitution makes no express reference to the right to obtain an abortion. 

Next, the court considers whether abortion can be construed as an essential component of 'ordered liberty' as reflected by its grounding in the nation's history. The judicial term commonly associated with this analysis is 'substantive due process.' A review of pre-American common law as well as American law all the way up to Roe clearly does not protect a right to abortion. In fact, the law generally specified abortion as a criminal act--often on the level of a felony or manslaughter.

Finally, the court considers the stare decisis issues associated with overturning a legal precedent--particularly a big one like Roe. The court applies several tests: the nature of the previous error, the quality of reasoning, the workability of rules resulting from the previous judgment, effects on other areas of the law, and interests that relied upon the previous decision. It also considered the dissent's claim that overturning Roe would create considerable political consequences and damage the court's legitimacy (Chief Justice Roberts seems particularly sensitive to these types of arguments). The central conclusion: stare decisis does not prevent righting wrongs, no matter how controversial the reversal might be.

In overturning Roe, the court does not make abortion illegal. Instead, it returns the decision to the various states. There, the citizens and their elected representatives must decide to what extent abortion should be permitted, regulated, or prohibited.

As Justice Thomas suggested in his concurring opinion, Dobbs might serve as a template for re-considering other previous high court decisions of questionable legal quality.

Oil's Embeddedness

Then one day, he was shootin' at some food
And up through the ground came a bubblin' crude
Oil, that is
Black gold...Texas tea
--Flatt & Scruggs

Couple of interesting oil charts. First, crude vs events:

Second, that same series alongside the CPI:

Many people don't seem to realize just how embedded oil is in our everyday lives.

Surprise?

It happened one summer
It happened one time
It happened forever
For a short time
--The Motels

Shut down production. Let demand go. Print money to fund demand.

What should happen to prices?

Why should our current predicament be surprising?

The Real Thing

Taste and see that the Lord is good.
--Ps 34:8

Today today we celebrate the feast of Corpus Christi--the body and blood of Christ. Catholics believe that the bread and water offered at mass do not represent symbols. They are transformed into Christ's real presence.

As such, nothing should get in the way of receiving it. Not travel, sports, or other distraction. 

What could be more important than receiving Jesus himself?

75 Bips

Hot summer streets
The pavements are burning
I sit around
Trying to smile
But the air is so heavy and dry
--Bananarama

After signaling thru their WSJ mouthpiece that they were considering a 75 basis pt fed funds rate increase, the FOMC followed thru on Wed. The last time the Fed did 75 bips was 1994. 

This puts the fed fund rate target at 1.75-2%.

The infamous 'dot plot' showing forecasts by FOMC members of future fed fund rates find them firmly above 3% by year end.

The Fed's miserable record in forecasting anything accurately makes taking these dot plot projections seriously pretty laughable. 

As these page have noted, all previous rate hike cycles end when something breaks. This is because of the increased systemic leverage that results from the previous easing cycle--which never allows interest rates to return to previous cycle highs. A recession usually follows, along with more easy money from the Fed.

How high will rates go before triggering the next recession? A review of history suggests we may not be far from the peak. Perhaps this 75 bip move pushes things over the edge.

The 3%+ dot plot forecasts seem destined to be wrong (again).

Dollar Dominance

We're talking 'bout the dollar bill
And that old man that's over the hill
--Simply Red

The US dollar has been touching multi-year highs as 'risk off' traders flee to what is perceived as the best house in a bad neighborhood. The below graph is telling in that regard.

At some point, the USD may be a meaty short candidate--particularly if you subscribe to the notion that the USD is in the process of losing its reserve currency status.

Updated Charts

You can make or break
You can win or lose
That's a chance you take
When the heat's on you
And the heat is on
--Glenn Frey

Updated version of two very important charts. The first is Fed funds rate and the SPX since 1980. What does this chart suggest about how for the Fed can raise before crying uncle?

The second is Fed balance sheet assets and the SPX since the onset of QE. What does this chart suggest about how much the Fed can unwind its balance sheet before crying uncle?

As we have asked before, when facing a choice between keeping money/credit in the system to keep markets from collapsing or removing money/credit from the system to fight inflation, the Fed will choose which option?

Yen Destruction

One day you feel quite stable
The next you're coming off the wall
But I think that you should warn me
If you start heading for a fall
--Saga

When leverage + money printing start going way wrong, the billiard balls begin careening around the table. One never knows where the blow ups will occur.

This time around, Japan is becoming an epicenter. Faced with unrelenting Bank of Japan (BOJ) intervention, the yen has been getting pounded and sits at 20+ yr lows. 

Now, with the 10 yr Japanese government bond (JGB) yield hitting the upper band tag in the BOJ's yield curve control program, the BOJ has bought about 1.5 trillion yen's worth of JGBs. If the pace continues through end of month, the BOJ will have purchased about 10 trillion yen's worth of bonds.

To put that in perspective, that would be the equivalent of the Fed doing more than $300 billion of QE when adjusted for GDP.

It is hard not to envision outright monetary collapse if the BOJ does not take its foot off the gas soon.

What that means for financial systems worldwide, as integrated as they are, is anyone's guess.

Correlation, Causation, Consequence

"There's a storm coming, Frank."
--Col Keith Davenport (Twelve O'Clock High)

They say correlation isn't causation.

Increasingly, however, many prospective voters think it is.

Unless they can scare people back into their houses again this fall, the consequence of these antecedents projects to be an election bloodbath.

Another High

First class and fancy free
She's high society
She's got the best of everything
--Tal Bachman

CPI prints another 40 yr high at 8.6%.

Gold up on the news as perhaps central banker's chronic incompetence is beginning to sink in w investors.

position in gold

Diverging Confidence

Chuck Scarett: How you feeling today?
Joe Scheffer: Confident.
--Joe Somebody

Two marquee measures of consumer confidence are diverging. The Conference Board's measure (blue line) is on the high end while the University of Michigan's measure (orange line) is tanking.

Although, as historical data indicate, the two series track each other well, there are periods of divergence--primarily because the Conference Board's measure appears to lag slightly behind UMich. 

When that divergence hits extremes, it is often noteworthy. Past instances where the difference between the two series has been this wide have corresponded to recessions.

It won't be too long before we find out whether history rhymes again.

Much Higher

I have a picture
Pinned to my wall
An image of you and of me
And we're laughing
We're loving it all
--Thompson Twins

Yesterday 10 yr Treasury yields closed back above 3%. As long duration yields rise, I've been pondering just how high they would need to be before I was a serious bond buyer.

My answer is, "Much higher."

For me, fixed income competes with dividend-paying stocks. Currently I can put together a portfolio of dividend paying stocks that pays a 3% or more in cash annually. 

Plus, those dividend yields are likely to increase over time. If yields increased 5% annually (not far from historical averages for many dividend payers), then a stock that pays $5/share annually in dividends this year will be paying more than $8/share ten years from now. 

There is also the potential for share price appreciation. These features are especially attractive to hedge against inflationary pressures like we have now.

Bonds simply do not offer the same risk/reward profile--at least at current levels.

Where would 10 yr Treasury yields need to be for me to consider them? Maybe 10% or more to compensate for the risks and opportunity costs of foregoing dividend-paying stocks.

It should be noted that these levels would approximate T-notes yields in the early 80s when the last bond bull market began.

No Reason?

There's a gun and ammunition
Just inside the doorway
Use it only in emergency
Better you should pray to God
The Father and the Spirit
To guide you and protect you from up here
--Mike and the Mechanics

Another example of left-wing gun grabber hypocrisy.

More recently, one could substitute into the first panel the thousands of 'assault weapons' being sent to Ukraine streetfighters over the past few months.

No reason?

Public Health Philosophy

Sometimes you're better off dead
There's a gun in your hand 
And it's pointed at your head
--Pet Shop Boys

Robert Malone proposes that public health policy is built on two philosophies: utilitarianism and Malthusianism.

Utilitarianism posits that the morally right action is the action that does the most good. It is a form of consequentialism--the correct action is assessed solely in terms of results produced. 

Utilitarianism fosters what these pages have deemed 'greater good accounting.' If a program is deemed to help more people than it hurts, then it is deemed a winner.

Malthusianism springs from the writings of political economist Thomas Malthus, who believed that population growth would outstrip food supply and other scarce resources, consequently triggering global poverty and death. 

The central implication of Malthusianism is population control. Limit the number of births so that future standard of living won't be compromised by too many people walking the planet.

Two hundred plus years, and billions of people, later and the world has yet to hit Malthus' dreaded upper bound of population. Why? More people produce more, which alleviates the scarcity that worried Malthus. Moreover, those people innovate, applying capital in manners that improve productivity even more.

Meanwhile, countries that have seen birth rates decline significantly, such as Japan, face major demographic headwinds likely to restrain standard of living in the years ahead.

None of that matters to public health officials, or climate alarmists, or socialists in general. The ingenuity that flows from liberty must be restricted in favor of utilitarian and Malthusian central planning. 

Never mind the misery and chaos that such planning creates... 

Confiscate the Cars

Who's gonna hold you down
When you shake?
Who's gonna tell you things
Aren't so great?
--The Cars

Nice one.

As we've noted, reason is not a prominent feature of gun grabber 'logic.'

Hysteria Again

I get hysterical
Hysteria
Oh can you feel it?
Do you believe it?
--Def Leppard

Acute situations foster System 1 thinking rather than reasoned thinking. System 1 thinking presents opportunity for politicians to engage in emotional capture.

It should therefore not be surprising that gun grabbers are once again coming out of the woodwork following recent episodes of mass shootings. They betray any semblance of sincerity by their hysterical idiocy.

These pages have previously suggested that, if they really wanted to sponsor 'serious' conversations about the positions they advocate, anti-gunners would benefit from better understanding of the firearms they target, and of their utility in self-defense situations.

That gun grabbers consistently fail to do so suggests that they believe the calm, reasoned approach to be a losing strategy.

So they continue down the path of hysteria.

Not Wide Enough

Sam Rogers: It's gonna get worse before it gets better.
Will Emerson: Ya think?
Sam Rogers: Much.
--Margin Call

One indicator that we're not at 'defcon' market levels is credit spreads. While spreads on junk bonds on rising, they're not at the wides associated with previous crises.

Due to its centrality to modern finance, we likely need to see more stress in the credit domain before 'the' bottom is in...

Return or You're Fired

Come on and let me know
Should I cool it or should I blow?
--The Clash

Unlike many CEOs who have been pussyfooting around the issue, Tesla (TSLA) CEO Elon Musk has made it clear. Come back to the office in person or seek employment elsewhere.

Musk seems to understand the productivity decline likely from remote work.

btw, lower productivity exacerbates inflation...